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SMM Morning Comments (Oct 22): Base Metals Fell across the Board amid Improving Employment Data and High Inflation
Oct 22,2021 10:00CST
Source:SMM
Shanghai base metals fell across the board on Friday morning after China’s government announced to curb the coal price increase and the US employment data improved. Meanwhile, their counterparts on LME all cruised higher. LME metals all closed lower in the trading on Thursday. Copper fell 4.15%, alu

SHANGHAI, Oct 22 (SMM) – Shanghai base metals fell across the board on Friday morning after China’s government announced to curb the coal price increase and the US employment data improved. Meanwhile, their counterparts on LME all cruised higher.

LME metals all closed lower in the trading on Thursday. Copper fell 4.15%, aluminium dropped 6.26%, lead shed 1.58%, and zinc lost 6.36%.

SHFE metals all went down in the overnight trading. Copper shed 3.05%, aluminium dropped 4.32%, lead fell 0.97%, and zinc slumped 4.76%.

Copper: Three-month LME copper fell 4.15% to close at $9,789/mt in the overnight trading yesterday, and is expected to trade between $9,820-9,910/mt today. The trading volume was 15,000 lots, and the open interest reached 269,000 lots.

The SHFE 2111 copper contract shed 3.05% to end at 71,900 yuan/mt last night, after hitting the lowest point at 71,600 yuan/mt, and is expected to trade between 71,700-72,300 yuan/mt today, with the spot premiums at 320-460 yuan/mt. The trading volume was 70,000 lots, and the open interest was 108,000 lots.

Last week’s number of initial claims for unemployment benefits in the United States recorded 290,000 overnight, a record low since the outbreak of the COVID-19 pandemic. The market turned to focus on when the Fed will taper the debt purchase and raise interest rates amid the improving employment data and the high inflations. The risk aversion sentiment increased. The domestic market sentiment eased after the government announced to curb the coal price increase, forcing the SHFE copper down significantly. The spot inventory in Shanghai continued to fall, and the holders intended to keep premiums high. The the inventory drops further, the spot premiums may stay in a game at around 400 yuan/mt.

Aluminium: LME aluminium opened at $3,093.5/mt on Thursday morning and closed at $2,903/mt, down $194/mt or 6.26%.

Overnight, the most-traded SHFE 2112 aluminium contract opened at 22,600 yuan/mt, with the lowest price at 21,550 yuan/mt before closing at 21,920 yuan/mt, down 990 yuan/mt or 4.32%.

The coal price fell sharply again last night, re-triggering panic in the SHFE aluminium market. In terms of supply, aluminium smelters in Guizhou and some other regions may further reduce production. At the same time, the overseas energy crisis has triggered market concerns about global supply shortages. However, in terms of demand, the power rationing continues to restrict overall downstream consumption. SMM data showed that the domestic aluminium social inventory increased by 70,000 mt from a week ago to 957,000 mt on Thursday. Despite expectations of aluminium production cuts, growing inventory and bearish ferrous metals market will put pressure on aluminium prices in the short term.

Lead: Three-month LME lead opened at $2,433.5/mt and closed $38.5/mt or 1.58% lower at $2,395/mt in the overnight trading yesterday, after hitting the highest and lowest levels at $2,433.5/mt and $2,363/mt respectively.

The most traded SHFE 2111 lead contract opened at 15,945 yuan/mt last night, hitting the highest and lowest levels at 15,995 yuan/mt and 15,725 yuan/mt respectively, and closed at 15,790 yuan/mt, down 155 yuan/mt or 0.97%.

Zinc: Three-month LME zinc dropped 6.36% to settle at $3,423/mt last night, with open interest decreasing 159 lots to 257,000 lots. Zinc stocks across LME-listed warehouses dropped by 1,025 mt or 0.51% to 199,925 mt. LME zinc prices are expected to move between $3,420-3,470/mt. 

The most-traded SHFE 2111 zinc contract slumped 4.76% to settle at 24,595 yuan/mt in overnight trading, with open interest down 5,929 lots to 48,429 lots. Ferrous metals prices fell sharply while the bearish futures markets also affected the spot market. The declining consumption and rising inventory suppressed zinc prices. The most-traded SHFE 2111 zinc contract is expected to move within a range of 24,400-24,900 yuan/mt today, and spot discounts for domestic #0 Shuangyan zinc will be seen at 10-30 yuan/mt against the November contract.

Nickel: SHFE nickel contract closed at 149,880 yuan/mt on Thursday evening, erasing all intraday gains in the previous day.

Nickel prices set a new record high. But fundamentally, there is little change in nickel supply, and the supply tightness of NPI remains. On the demand side, some steel mills purchased pure nickel before the nickel price rose amid tight supply and premiums of high-grade NPI over pure nickel. But due to the overall decline in stainless steel output, the increase in demand for nickel was limited. On the whole, the current contradiction between nickel supply and demand is not obvious. The sharp increase in nickel prices will be driven by funds. We still need to pay attention to the risk of nickel prices falling from high levels.

Tin: Overnight, SHFE tin gradually stabilised after falling to around 280,000 yuan/mt. Tin smelters are expected to increase production, but market inventories are still at a low level and there is no obvious sign of inventory accumulation in the short term. In the short term, the actual impact of power rationing on the demand side is limited. Demand will remain strong in the long term. Investors have begun to roll their positions onto the 2112 contract. The balanced supply/demand dynamics will keep prices at highs in the short term. Prices will remain bullish in the long term due to strong demand. The most-traded SHFE tin contract is expected to meet resistance at 286,000 yuan/mt and find support at 278,000 yuan/mt on Friday.

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